Dutch government expected to fall as austerity talks fail

Reuters and AP, The Hague

The Dutch government was set to resign yesterday in a crisis over budget cuts, spelling the end of a coalition that has strongly backed an EU fiscal treaty and lectured Greece on getting its finances in order.

Dutch Prime Minister Mark Rutte was to write to parliament later in the day offering the resignation of his Cabinet, which relies on the far-right Party for Freedom (PVV) to pass legislation, two sources said, opening the way for almost inevitable new elections.

The crisis marks an embarrassing setback for Dutch Finance Minister Jan Kees de Jager, who has taken a tough line with eurozone “budget sinners” such as Greece, saying it should be denied international aid unless it gets its fiscal house in order.

The Cabinet gathered to discuss what to do after Geert Wilders and PVV walked out of the talks designed to meet EU budget deficit rules.

Without the PVV, Rutte’s right-wing coalition no longer commands a majority in parliament.

Rutte was scheduled to pay his regular weekly visit to Queen Beatrix in the early afternoon and the government information service said he would update her on the political crisis.

The remaining question hanging over the Cabinet is how — as a caretaker government — it can best comply with EU rules and shrink its deficit.

“Our main concern is how we can keep the state finances on the rails on the way to elections,” Dutch Economics Affairs Minister Maxime Verhagen said via his Twitter feed.

Although the Netherlands has relatively low levels of national debt, its economy is in recession and it is expected to post a deficit of 4.6 percent this year — well over the 3 percent mandated by EU rules.

Opposition lawmakers say they are prepared to work with Rutte to draw up a budget for next year, but only if he quits first.

The package Rutte had been negotiating with Wilders would have slashed foreign aid and hastened a phased increase in the retirement age to 66 from 65.

Wilders said he ultimately could not support the package due to provisions for state pension cuts “for the sake of the dictators in Brussels,” he said.

European Commissioner for Digital Agenda Neelie Kroes said in an interview with national broadcaster NOS that Wilders was being hypocritical, since the Netherlands itself, along with Germany, had been one of the loudest in demanding Brussels adopt a 3 percent deficit limit.

“Pointing to Brussels now is dumb, it’s untrue, it’s distracting and it doesn’t solve anything,” said Kroes, who is a member of Rutte’s free-market People’s Party for Freedom and Democracy.

She added that she still expects the Netherlands, like other countries, to turn in a preliminary budget plan for next year by Monday next week.

If Rutte is able to work with the left-leaning parties, they will likely seek to refocus attention in part on tax increases on the wealthy rather than just spending cuts, notably by reducing a tax deduction on mortgage debt.

Financial markets have taken the Dutch crisis in stride, with yields on Dutch bonds just 0.11 percent higher than they were before the weekend. Government bonds are trading around 2.35 percent for 10-year debt, about 0.6 percent more than Germany.